The royal commission is linking insurance companies and psychiatric damage to customers

The financial services royal commission is looking at the liability of insurance companies for the psychiatric damage inflicted on customers who have their claims unjustly denied.

Royal Commissioner Kenneth Haynes was commenting today on a case in which a woman was denied a payout for income protection cover, and was accused of fraud by insurance company TAL, despite medical evidence in her favour showing she didn’t have a pre-existing condition.

The woman also came under intense surveillance and was made to fill out a diary, which she said made her anxiety worse.

“My impression was that the doctor was saying that his patient was worse because of the way in which the insurer had treated her,” said Commissioner Kenneth Hayne.

The commissioner then questioned whether or not the insurer should be held accountable.

“Within my terms of reference, is that misconduct or conduct falling below (community expectations)?” he said.

Rowena Orr, senior counsel assisting the commission, said: “I think our position would be that that psychiatric evidence is demonstrative of the breach of the utmost duty of good faith in section 13 of the Insurance Contract Act.”

Hayne replied that he understood and also pointed to the fact that allegations of fraud should not be made lightly.

In the case being cited, the Financial Ombudsman Service ruled in favour of the woman insured.

The royal commission is due to make its interim report this month into misconduct in the financial serveries sector.